The Sony-championed Blu-ray optical disc has to date significantly undershot its backers' initial forecasts. Format wars and economic recessions haven't helped matters, but is there substantial market pull for such substantial storage?

Kazuo Hirai, then president and chief executive officer of Sony Computer Entertainment America, and Ken Kutaragi, at the time the president of Sony Computer Entertainment, likely felt on top of the world when the two corporate executives took to the stage at mid-May 2005’s E3 (Electronic Entertainment Expo) in Los Angeles to unveil the PS (PlayStation) 3 game console (Figure 1). After all, the PlayStation 2, for which both men held prominent and visible project roles, had handily won that console-generation war, beating back both historical competitor Nintendo’s Gamecube and upstart Microsoft’s first-generation Xbox (Reference 1). In the process, the PS2 had become a key factor in the success of optical-DVD (digital-video-disc) media, by virtue of its DVD-playback capabilities and content-subsidized price tag. Sony hoped that the PS3 would play the same role for next-generation Blu-ray media, not only generating profitable revenue for the Sony Studios movie subsidiary but also regaining the lucrative patent-royalty crown that it and partner Philips had held with the optical CD and subsequently lost to fellow competitor Toshiba in the DVD era (Figure 2).

Blu-ray: Dogged by delays, will it still have its day? figure 1Fast-forward five years, and you’ll find that those rosy predictions haven’t come to fruition (references 2 through 4). DVD-content rentals and sales still eclipse by a substantial margin their Blu-ray counterparts, even though Blu-ray movies and stand-alone players first became available four years ago. “If you get a number of titles hitting 30% of sales in Blu-ray, then that is successful,” says Craig Kornblau, president of Universal Studio’s home-entertainment sector. When he made that statement last December, the Blu-ray format had garnered only about 14% of the revenue of DVDs, despite having substantially higher per-disc manufacturing and distribution costs (Reference 5).

Blu-ray: Dogged by delays, will it still have its day? figure 2This failure comes despite the fact that several movie studios have offered inexpensive DVD-to-Blu-ray trade-in programs that strive to encourage the format migration of both SD (standard-definition) and HD (high-definition) DVDs to Blu-ray, along with dual-format DVD-plus-Blu-ray “flipper” discs. It comes despite hardware suppliers’, content providers’, and retail partners’ heavy Blu-ray-format promotion and despite the fact that, thanks to cable, IPTV (Internet Protocol television), and satellite-subscription providers’ service upgrades, consumers can now discern the improvements of HD images over their SD predecessors. Last summer’s transition in the United States from NTSC (National Television System Committee) to ATSC (Advanced Television Systems Committee) over-the-air broadcasts also provided encouragement for consumers’ broader migration to HD material versus the SD predecessor (see sidebar “A fuzzy future”). And it comes despite faster-than-anticipated content and hardware price decreases, which have led to dubious profitability for vendors in the supply chain, including building-block- semiconductor companies.

How has the Blu-ray industry arrived at this messy point, and what path—if any—exists for it to achieve eventual success, both fiscally and in other ways? Given this situation, should you consider adding Blu-ray support to your future designs and, if so, when? Both the underlying reasons for and the fading potential exits from this debacle are complex. The Blu-ray quagmire provides a compelling case study of the pitfalls of a short and narrow vision that adapts to neither history’s lessons nor today’s deviations. This flawed vision assumes that suppliers’ push will still ultimately triumph even without a substantial amount of customers’ pull.

Console controversy

The Sony PS3 remains an ideal hardware platform for Blu-ray playback, thanks to its substantial processing muscle for both current needs and future feature updates; HDMI (high-definition-multimedia-interface) output; hard-disk-drive- based upgradability; and upgrade-friendly, built-in, wired- and wireless-Internet connectivity. The reasons for its less-than-stellar market performance to date, however, begin with its late-2006 introduction date. Microsoft and Nintendo had launched their Xbox 360 and Wii, respectively, a year earlier, and both their initial consoles and subsequent accessories and content proved tempting to shoppers (Reference 6).

Even this setback, under ordinary circumstances, might not have been a deal breaker. Despite its traditional razors- and-blades-subsidized sales mode, however, the entry-level PS3 sold for $100 more than the premium Xbox 360 variant, $200 more than the entry-level Xbox 360, and $250 more than the Nintendo Wii (Reference 7). The entry-level PS3 also eliminated key features as a cost-reduction move. For example, it offered neither an HDMI output nor embedded Wi-Fi, had no distinctive cosmetics, and lacked an integrated memory-card adapter. To obtain these capabilities, along with a 20- to 60-Gbyte hard-disk upgrade, would cost $100 more, pushing the price to more than the all-important $500 threshold.

Sony has slowly but demonstrably addressed the PS3 pricing problem, along with slimming the console and reducing its ambient noise, albeit with requisite feature retractions. The company first restricted and then eliminated game-content compatibility with the PS2 and, more recently, dispensed with the ability to run other operating systems, such as Linux, on the hardware. It could do little, however, beyond the control over its own game studio’s offerings regarding the comparative lack of compelling content—especially, exclusive titles—for the PS3. This dearth was due in large part to the difficult-to-program distributed-processing model employing the unproven Cell CPU architecture, along with third-party developers’ skepticism that their development investments would incur an adequate fiscal return.

Sony also had no control over the still-lingering economic crisis that in 2008 gripped the United States—a big problem for a foreign company such as Sony due to currency exchange-rate factors—and rapidly expanded from there to blanket the global economy. Unemployment for many, uncertain futures for those remaining employed, and a credit crunch for everyone prompted many whose PS3 downward-pricing moves might normally tempt to instead keep their wallets in their pockets. Ironically, it conversely was at least a moderate win for Microsoft and Nintendo because their customers had already made the pricey initial hardware investments. These consumers weren’t traveling and otherwise going out for entertainment; they instead stayed home with Microsoft’s and Nintendo’s comparatively inexpensive new games and accessories.

Optical competition

Whereas Sony had burdened every PS3 with an expensive Blu-ray drive, Microsoft instead sold its now-discontinued HD-DVD player, which partner and key HD-DVD promoter Toshiba supplied, as an optional USB (Universal Serial Bus) 2-tethered add-on. Besides reducing the base console’s cost and consequent price, this accessory move gave customers something else to purchase for a subsequent birthday or holiday, and it created the as-yet-unrealized perception that, if HD DVD lost the format war, Microsoft could switch gears and instead support Bluray with a different external drive and associated software. In other words, Microsoft’s omission of an integrated HD optical drive preserved consumers’ investments in their base consoles, regardless of the outcome of the format war. Sony’s integrated drive, on the other hand, would effectively obsolete a notable portion of the PS3’s appeal should Blu-ray end up the loser. Given this discrepancy in consumer perception, it’s easy to see how the battle, which largely ended in early 2008, almost a year and a half after the PS3’s release, further dimmed consumers’ enthusiasm for the PS3. HD DVD’s foundation technology lives on in the form of the CBHD (China Blue High- Definition Disc), which to date shows strong indication of usurping Blu-ray in that all-important market.

Sony had followed a similar integration strategy with the DVD-inclusive PS2 and for even fewer obvious reasons: Sony Studios would benefit from DVD sales, but Sony’s patent presence in DVD was more limited than its presence in Blu-ray. Nevertheless, the DVD-on-PS2 outcome had turned out more positively for the company. The difference this time was that DVD had received a far more unified industry embrace. The format war was less intense and relatively quickly over with DVD.

Another critical factor was that consumers correctly perceived DVD as a greater advancement over the VHS (video-home-system) predecessor than Blu-ray was an advancement over DVD. When DVD emerged, consumers were comfortable with the optical-disc format from years’ worth of audio-CD experience. They were also familiar with the audio CD’s advantages over cassette tapes: short and long-term sonic quality, media durability, and fast random access to any segment of the stored content . As a result, they quickly embraced the DVD format.

Blu-ray’s primary sales pitch—high-resolution images—was of significance only to consumers whose displays and viewing setups enabled them to discern the quality improvement. Initial Blu-ray offerings, such as the low-quality first-generation The First Element, employed the archaic MPEG (Motion Pictures Experts Group)-2 video codec instead of the more modern H.264, also known as MPEG-4 AVC (advanced video coding), MPEG-4 JVT (joint video team), or MPEG-4 Part 10, or VC (video coding)-1, also known as Windows Media Video 9 Advanced. That choice didn’t much help matters for Blu-ray’s fortunes. And inexpensive DVD players, which used sophisticated upscaling techniques to fill in the pixels absent from the standard-definition 4-by-3 or wide-screen image source, further muddied the high-definition picture.

Analogies to DVD-Audio and SACD (super audio compact disc) versus the CD predecessor are apt (Reference 8). In this case, a format war also existed, and the industry was attempting to move consumers from a conventional to a supposedly higher bit- and sampling-rate presentation. The dueling sound formats even offered native surround-sound enhancements versus their two-channel red-laser audio-CD predecessor. Customers ultimately gave both formats a lukewarm embrace, however, perceiving their predecessor as good enough. The video industry didn’t learn from its audio counterpart’s problems but instead followed a similar technology-treadmill strategy in the absence of strong customer demand and, thus far, with a largely similar outcome.

Standards in flux

Look beyond prerecorded movies to consumer-generated content, and you’ll encounter yet another format fracas. In the post-DV (digital-video) SD era, high-resolution consumer camcorders subdivided into three camps: tapebased HDV (high-definition video) employing high-definition MPEG-2, solid-state-storage-based AVCHD (advanced video codec high definition) leveraging H.264, and largely proprietary hard-disk-drive-based approaches. AVCHD has now garnered the lion’s share of the business, partially thanks to flash memory’s ruggedness, low power consumption, compactness, and fast-random-access media. Yet it’s taken several years for this situation to even begin to sort out. Throughout this time, consumers, content with SD DV cameras and DVD optical-archive and playback media, have delayed upgrading their HD equipment.

Continued in Part 2 - Blu-ray: Dogged by delays, will it still have its day?